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A few notes on the Denver Nuggets’ transaction timing

Transaction timing is very, very important in the NBA’s offseason. Most people are aware of using players’ small cap holds and their Bird rights to sign them to more lucrative deals after using the remainder of their cap space, as Brooklyn has done this summer with Joe Harris. While the terms of his two-year, $16 million deal have already been agreed, the official signing won’t go through until much later, allowing the Nets to make moves like they did on Thursday, when they shipped Jeremy Lin to the Atlanta Hawks and brought in Kenneth Faried and Darrell Arthur, along with two future draft picks, from the Denver Nuggets. Had they officially signed Harris earlier in the offseason, this deal wouldn’t have been possible, but teams are well aware of how to navigate this aspect of the salary cap to ensure they maximize their potential cap space in a particular offseason. Less well-known is the small error the Nuggets seem to have made with their signings of Jarred Vanderbilt and Torrey Craig, both of whom were made official earlier this week but could have been stalled in order to unlock more flexible exceptions for Denver to use this offseason.

First, a bit of background for those of you who aren’t as well-versed in the NBA’s salary cap. When a team is spent over the cap, they have a number of exceptions they can use to continue to sign players, both their own free agents and those from other teams. These exceptions are limited as compared to standard cap space, but give these teams a chance to compete for free agents they would otherwise be unable to obtain if the NBA instituted a harder cap. These exceptions dwindle as teams increase their payroll; specifically, over-the-cap teams have what’s called the non-taxpayer mid-level exception, starting at $8.6 million this season, to sign free agents, whereas tax teams have the taxpayer mid-level exception, which falls to $5.3 million and has limits on how many years that contract can go. Perhaps the most important aspect of the non-taxpayer mid-level exception is that it triggers the hard cap, set at $129.8 million this year, and disallows a team from going over that amount in salary at any point throughout the year.

After signing Nikola Jokic and Will Barton to lucrative new contracts, the Nuggets were well beyond the hard cap (also known as the “apron”), which made it so that they only had the taxpayer mid-level exception available to them. However, upon moving Faried, Arthur, and Wilson Chandler (sent to Philadelphia in an earlier deal), they found themselves below the apron by enough to use their full non-taxpayer mid-level exception to bring in a player on a larger salary. However, they will be unable to do so, as they’ll be stuck with just the taxpayer mid-level exception. Why? The answer is in the timing of three transactions: the Faried-Arthur trade, the signing of Jarred Vanderbilt, and the re-signing of Torrey Craig.

Initial confusion arises with respect to these exceptions because it’s not explicitly spelled out in the Collective Bargaining Agreement that teams are required to declare which exception they use to sign a player when the contract is made official with the league office. For the most part, it’s not an issue, because teams can stack their signings in the right order to use the correct exceptions, but when a week like this one befalls a team, the timing of the transactions can change even the best-laid plans. Because the Nuggets signed Torrey Craig and Jarred Vanderbilt to contracts that fit the taxpayer mid-level exception earlier this week, they cannot reclassify those contracts under the non-taxpayer mid-level exception, despite the fact that both deals fit the non-taxpayer mid-level. Essentially, once they officially use part of the taxpayer mid-level, they’re stuck with just that exception, regardless of the other moves they make with regards to their team salary and the apron. In practice, this means that the Nuggets are unable to use what would have remained of their non-taxpayer mid-level exception and the full bi-annual exception, and are instead stuck with the remaining $2.5 million of the taxpayer mid-level.

Whether this is a mistake by the Nuggets front office is an unknown. How quickly the Faried-Arthur trade came together will be the question – did they have a general framework set up with the Nets before officially signing Craig on 7/9, or did the whole trade come together later than that? If the former is true, then they could have delayed the Craig signing until after the trade went through and used the non-taxpayer mid-level exception to bring him back, with the option to move him to the taxpayer mid-level exception should they later want to do so. However, the reverse is not possible – teams cannot reclassify a contract from the taxpayer to the non-taxpayer mid-level – which limits Denver’s flexibility as a result.

In reality, there’s very little chance this will impact the Nuggets’ plans for the upcoming season. With just one roster spot available, the extra flexibility they would have had by getting back the non-taxpayer mid-level and the bi-annual exception likely wouldn’t have been fully used anyway, as teams are not allowed to combine those two exceptions to sign a bigger player. The extra $3.3 million (and the extra year they could have offered) would have provided them with some added flexibility, but given where the market is with regards to free agents and Denver’s depth across every position, they won’t be hurt too badly by this turn of events. However, the series of transactions is a good lesson to all teams in the league – timing signings to meet various goals isn’t just done to take advantage of small cap holds, it can have big consequences on flexibility with regards to the over-the-cap exceptions and a team’s ability to bring in a player through sign-and-trade, which will also be unavailable to the Nuggets this offseason. Timing is incredibly important for under-the-cap teams to maximize their space, but as we’ve seen with Denver this week, there are implications for over-the-cap teams as well.

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[…] By shedding Faried and Arthur’s contracts, the Nuggets are no longer in salary cap hell. The trade offered a combined $43 million in salary and projected luxury tax savings, according to ESPN’s Bobby Marks, and the Nuggets are now $8.7 million below the luxury tax. This all means they have unlocked most of their mid-level exception and full bi-annual exception. Unfortunately, because they already signed Torrey Craig using their taxpayer mid-level exception, they cannot convert his contract to work under the full mid-level exception, meaning they only have about $2.5 of the mini-MLE to spend. For more information about the financial implications of the transaction, check out this Early Bird Rights piece. […]